CHALLENGES OF INFRASTRUCTURE DEVELOPMENT IN INDIA [Type the document title]

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Roll No. 51 SYBMS Name : sanjit tambe

MEANING 1) Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. 2) It can be generally defined as the set of interconnected structural elements that provide framework supporting an entire structure of development. It is an important term for judging a country or region's development. The term typically refers to the technical structures that support a society, such as roads, water supply, sewers, electrical grids, telecommunications, and so forth, and can be defined as "the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance social living conditions." 3) Viewed functionally, infrastructure facilitates the production of goods and services, and also the distribution of finished products to markets, as well as basic social services such as schools and hospitals; for example, roads enable the transport of raw materials to a factory. 4) In military parlance, the term refers to the buildings and permanent installations necessary for the support, redeployment, and operation of military forces.

We can segregate infrastructure in two parts : 1) Hard Infrastructure - "Hard" infrastructure refers to the large physical networks necessary for the functioning of a modern industrial nation. 2) Soft Infrastructure - "Soft" infrastructure refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as the financial system, the education system, the health care system, the system of government, and law enforcement, as well as emergency services.

1) Types of Hard Infrastructure The following list of hard infrastructure is limited to capital assets that serve the function of conveyance or channelling of people, vehicles, fluids, energy, or information, and which take the form either of a network or of a critical node used by vehicles, or used for the transmission of electro-magnetic waves.

Infrastructure systems include both the fixed assets, and the control systems and software required to operate, manage and monitor the systems, as well as any accessory buildings, plants, or vehicles that are an essential part of the system. Also included are fleets of vehicles operating according to schedules such as public transit buses and garbage collection, as well as basic energy or communications facilities that are not usually part of a physical network, such as oil refineries,radio, and television broadcasting facilities.

Transportation infrastructure

Road and highway networks, including structures (bridges, tunnels, culverts, retaining walls), signage and markings, electrical systems (street lighting and traffic lights), edge treatments (curbs, sidewalks, landscaping), and specialized facilities such as road maintenance depots and rest areas Mass transit systems (Commuter rail systems, subways, tramways, trolleys, City Bicycle Sharing system, City Car Sharing system and bus transportation) Railways, including structures, terminal facilities (rail yards, train stations), level crossings, signalling and communications systems Canals and navigable waterways requiring continuous maintenance (dredging, etc.) Seaports and lighthouses Airports, including air navigational systems Bicycle paths and pedestrian walkways, including pedestrian bridges, pedestrian underpasses and other specialized structures for cyclists and pedestrians Ferries

For canals, railroads, highways, airways and pipelines see Grbler (1990), which provides a detailed discussion of the history and importance of these major infrastructures.

Energy infrastructure

Electrical power network, including generation plants, electrical grid, substations, and local distribution. Natural gas pipelines, storage and distribution terminals, as well as the local distribution network. Some definitions may include the gas wells, as well as the fleets of ships and trucks transporting liquefied gas.

Petroleum pipelines, including associated storage and distribution terminals. Some definitions may include the oil wells, refineries, as well as the fleets of tanker ships and trucks. Specialized coal handling facilities for washing, storing, and transporting coal. Some definitions may include Coal mines. Steam or hot water production and distribution networks for district heating systems. Electric vehicle networks for charging electric vehicles.

Coal mines, oil wells and natural gas wells may be classified as being part of the mining and industrial sector of the economy, not part of infrastructure.

Water management infrastructure

Drinking water supply, including the system of pipes, storage reservoirs, pumps, valves, filtration and treatment equipment and meters, including buildings and structures to house the equipment, used for the collection, treatment and distribution of drinking water Sewage collection, and disposal of waste water Drainage systems (storm sewers, ditches, etc.) Major irrigation systems (reservoirs, irrigation canals) Major flood control systems (dikes, levees, major pumping stations and floodgates) Large-scale snow removal, including fleets of salt spreaders, snow plows, snowblowers, dedicated dump trucks, sidewalk plows, the dispatching and routing systems for these fleets, as well as fixed assets such as snow dumps, snow chutes, snow melters Coastal management, including structures such as seawalls, breakwaters, groynes, floodgates, as well as the use of soft engineering techniques such as beach nourishment, sand dune stabilization and the protection of mangrove forests and coastal wetlands.

Communications infrastructure

Postal service, including sorting facilities Telephone networks (land lines) including telephone exchange systems Mobile phone networks Television and radio transmission stations, including the regulations and standards governing broadcasting Cable television physical networks including receiving stations and cable distribution networks (does not include content providers or "networks" when used in the sense of a specialized channel such as CNN or MTV)

The Internet, including the internet backbone, core routers and server farms, local internet service providers as well as the protocols and other basic software required for the system to function (does not include specific websites, although may include some widely-used web-based services, such as social network services and web search engines) Communications satellites Undersea cables Major private, government or dedicated telecommunications networks, such as those used for internal communication and monitoring by major infrastructure companies, by governments, by the military or by emergency services, as well as national research and education networks Pneumatic tube mail distribution networks

Solid waste management

Municipal garbage and recyclables collection Solid waste landfills Solid waste incinerators and plasma gasification facilities Materials recovery facilities Hazardous waste disposal facilities

Earth monitoring and measurement networks

Meteorological monitoring networks Tidal monitoring networks Stream Gauge or fluviometric[15] monitoring networks Seismometer networks Earth observation satellites Geodetic benchmarks Global Positioning System Spatial Data Infrastructure

2) Types of Soft Infrastructure

Soft infrastructure includes both physical assets such as highly specialized buildings and equipment, as well as non-physical assets such as the body of rules and regulations governing the various systems, the financing of these systems, as well as the systems and organizations by which highly skilled and specialized professionals are trained, advance in their careers by acquiring experience, and are disciplined if required by professional associations (professional training, accreditation and discipline). Unlike hard infrastructure, the essence of soft infrastructure is the delivery of specialized services to people. Unlike much of the service sector of the economy, the delivery of those services depend on highly developed systems and large specialised facilities or institutions that share many of the characteristics of hard infrastructure.

Governance infrastructure

The system of government and law enforcement, including the political, legislative, law enforcement, justice and penal systems, as well as specialized facilities (government offices, courthouses, prisons, etc.), and specialized systems for collecting, storing and disseminating data, laws and regulation

Emergency services, such as police, fire protection, and ambulances, including specialized vehicles, buildings, communications and dispatching systems Military infrastructure, including military bases, arms depots, training facilities, command centers, communication facilities, major weapons systems, fortifications, specialised arms manufacturing,strategic reserves

Economic infrastructure

The financial system, including the banking system, financial institutions, the payment system, exchanges, the money supply, financial regulations, as well as accounting standards and regulations

Major business logistics facilities and systems, including warehouses as well as warehousing and shipping management systems Manufacturing infrastructure, including industrial parks and special economic zones, mines and processing plants for basic materials used as inputs in industry, specialized energy, transportation and water infrastructure used by industry, plus the public safety, zoning and environmental laws and regulations that govern and limit industrial activity, and standards organizations

Agricultural, forestry and fisheries infrastructure, including specialized food and livestock transportation and storage facilities, major feedlots, agricultural price support systems (including agricultural insurance), agricultural health standards, food inspection, experimental farms and agricultural research centers and schools, the system of licencing and quota management, enforcement systems against poaching, forest wardens, and fire fighting

Social infrastructure

The health care system, including hospitals, the financing of health care, including health insurance, the systems for regulation and testing of medications and medical procedures, the system for training, inspection and professional discipline of doctors and other medical professionals, public health monitoring and regulations, as well as coordination of measures taken during public health emergencies such as epidemics The educational and research system, including elementary and secondary schools, universities, specialised colleges, research institutions, the systems for financing and accrediting educational institutions Social welfare systems, including both government support and private charity for the poor, for people in distress or victims of abuse

Cultural, sports and recreational infrastructure

Sports and recreational infrastructure, such as parks, sports facilities, the system of sports leagues and associations Cultural infrastructure, such as concert halls, museums, libraries, theatres, studios, and specialized training facilities Business travel and tourism infrastructure, including both man-made and natural attractions, convention centers, hotels, restaurants and other services that cater mainly to tourists and business travellers, as well as the systems for informing and attracting tourists, and travel insurance.

Scenario of Infrastructure in India

Indias rapid economic growth over the last decade has placed tremendous stress on its limited infrastructure, bringing the shortage of infrastructure to the fore. The approach paper to the Twelfth Five Year Plan envisages a growth of 9%-9.5% for the country in the years 2012-2017 admist a slowing global demand and an uncertain business environment especially in the Eurozone and the United States, two of Indias key trading partners. In such a scenario, the fulfillment of the countrysaggressive growth aspirations would depend on its ability to invigorate its domestic demand through investment, particularly in infrastructure projects and its ability to provide a congenial business environment for all concerned players. The country needs to urgently accelerate the conceptualization and implementation of all its infrastructure development to enable planned growth.The significance of Indias infrastructure deficit has not been lost on the policy makers in the country, a realization that has seen the investment in infrastructure going up from 5.7% of the GDP in the base year of the eleventh plan to around 8% of the GDP in the last year of the plan. The pace of investment has been particularly buoyant in some sectors, notably telecommunications, oil & gas pipelines, while falling short of targets in electricity, railways, roads and ports. Efforts to attract private investment into infrastructure through the public-private partnerships (PPP) route have met with reasonable success, both at the Central and

State government levels. A lot however still needs to be done to ensure that the needgap is met.

CURRENT FACTS

India has the world's third largest road network, covering more than 4.3 million kilometers and carrying 60% of freight and 87% of passenger traffic. Indian Railways is the fourth largest rail network in the world, with a track length of 114,500 kilometers. India has 13 major ports, handling a cargo volume of 850 million tonnes in 2010. India has a national teledensity rate of 74.15% with 926.53 million telephone subscribers, two-thirds of them in urban areas, but Internet use is rare, with around 13.3 million broadband lines in India in December 2011. However, this is growing and is expected to boom following the expansion of 3G and WiMAX services.

Infrastructure Financing Opportunities and Challenges

Among other things infrastructure development of a nation involves building of new roads, dams, bridges, powerhouses, railways, ports, airports and even network industry such as telecom. In Union budget 2011-2012 Rs. 214000 crore have been assigned for infrastructure development. Total infrastructure investments have been estimated to be $488 billion in the 11th Five Year plan. According to planning commission this value will rise to $1025 billion in 12th Five Year plan. 50% of this amount needs to be invested by private firms. This is so because government do not have appropriate funds to meet this demand. Moreover the amount that banks lend is on short term basis while infrastructure financing requires long term investments.

In the words of Ratan Tata: With US bringing in advanced technology and expertise in infrastructure financing and India poised for major development, both sides should work together towards developing infrastructure projects.

Infrastructure Financing Sources: According to Reliance Industries chairman Mukesh Ambani this sector requires US $500 billion investment over next five years. This creates tremendous opportunities for both private and foreign investors. To attract investment from private firms the Indian government is undertaking several measures like: PPP- Public Private Partnership- In such partnerships the projects are financed both by government and private firms or just the private firms. SPVs- Special Purpose Vehicles- SPVs like IIFC, India Infrastructure Finance Corporation, have been setup to facilitate long term debts to investors. Providing revenue subsidies (Tax breaks) Investment is also possible through overseas funding or foreign investments through FDI (Foreign Direct Investment), FII (Foreign Institutional Investor) and ECB (External Commercial Borrowings). Opportunities and Challenges: Following are the few sectors in which infrastructure development in our country is the need of hour: Railways : Indian railway is the largest rail network in Asia. Daily it carries almost 13 million passengers and 12.5 million tones of freight everyday. Railways are the biggest employer in our country. Expanding rail network and upgrading the existing rail network will greatly increase the income levels generated from it. Infrastructure can be improved by: Doubling and port connectivity Gauge connection Development of better locomotives so that there is loss/ damage during transportation Dedicated freight corridors between major cities Reconstruction of current railway stations to world class railway stations Introducing metros rather than traditional railways for local travel Better passenger amenities Developing better customer satisfaction by use of information technology. That involves providing up-to-date train information to passengers Giving private sector a chance to develop innovative, effective and new ideas for infrastructure design Power sector:

To meet the ever growing challenges of economy it is important that infrastructure in power sector is developed to its full potential. Since non-renewable sources of energy like coal are depleting it is important that alternative sources of energy are used. The challenges include developing an infrastructure that can produce power using sources like solar energy, wind energy or nuclear energy. Better transmission lines need to be developed so that there is less loss during transmission of power. Ports : Ports play a crucial role in facilitating Indias international trade. Our country has a coastline of 7517 kms and 12 major ports. Developing better port infrastructure can help to promote exports, imports, real estate as well as transportation of oil. Better infrastructure will cut down transaction time and thereby its cost significantly. Roads: India has a road network of over 3.314 million kilometres. It is the third largest road network in the world. They carry 61% of freight and 85% of passenger traffic. Government is developing more and more national highways and better road development is needed. It is the most important network to connect rural and urban areas. Better roads are needed to ensure better supply chain management, on time delivery of products and services. Government is promoting PPP in this sector through various ways such as providing 100% income tax exemption for a period of 10 years, assigning contracts on BOT toll base model. Airports: Up gradation of existing airports to international standards will attract more tourism. Development of new airports and their maintenance should be handed over to private firms. More airbuses should be started to accommodated increasing demand. Urban housing: More and more people are migrating from rural to urban areas. Urban areas do not have adequate infrastructure to accommodate them. Better utilization of land available needs to be done. More feasible infrastructures need to be developed keeping in mind the scarcity of land available. Telecom : Ours is the fifth largest telecom service market in the world. Right now both public and private firms are there in this market with public sector having 43% of share market. A manifold amount of progress and development is expected in this area in next five years. Storage Places: Despite growing production of vegetables, fruits and cereals their availability is inadequate due to bottlenecks in retailing capacity. An estimated 40 per cent of the fruit and vegetable production in India goes waste due to lack of storage and

transport infrastructure as shelve life of agriculture produce is low. Most of the grains produced are lost due to lack of storage or poor storage houses. Difficulties Faced In Financing: Large amounts for long period of time are required Higher gestation period involved Uncertainties associated in implementation of project like environmental clearance, opposition by social activates, updated technology etc. Future: Today many countries want to trade with India but lack of infrastructure hampers that. We can rapidly develop our economy if proper infrastructure is developed and maintained. Government should try and include as many private firms as possible to get in more innovative ideas. This in turn will ensure reduce in governments spending and high quality infrastructure.

BUDGET ALLOCATION FOR INFRASTRUCTURE (BUDGET 2012-2013)

Union Finance Minister Pranab Mukherjee in the Union budget 2012-13 proposed allocation of Rs. 50 lakh crore towards infrastructure investment during the Twelfth Plan period. About half of this is likely to come from the private sector. As part of the General Budget, the Finance Minister doubled the tax free bonds for financing infrastructure projects to Rs. 60000 crore. During 2012-13, the tax free bonds include Rs. 10,000 crore each for NHAI, IRFC, IIFCL and power sector, and Rs. 5000 crore each for HUDCO, National Housing Bank, SIDBI, and ports. The Finance Minister also announced the inclusion of more sectors in the list of sectors eligible for Viability Gap Funding (VGF) under the scheme for support to Public Private Partnership (PPP) in infrastructure. These sectors are irrigation (including dams, channels and embankments), terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertilizer. It was announced during the presentation of the budget that India Infrastructure Finance Company Limited (IIFCL) set up a structure for credit enhancement and take-out

finance with an objective to provide ease of access of credit to infrastructure projects. It was also informed that an Infrastructure Debt Fund with an initial size of Rs. 8000 crore was launched in early March 2012 to tap the overseas markets for long term pension and insurance funds. It was also stated that the Government has approved guidelines under which defence Public Sector Undertakings adopting the PPP mode, can establish joint venture.

Budgetary provisions for Infrastructure Development The Union Budget 2012-13 stated that investment in infrastructure is to go up to Rs 50 lakh crore with half of the total investment expected from private sector. More sectors proposed to be added as eligible sectors for Viability Gap Funding under the scheme- Support to PPP in infrastructure. Tax free bonds of Rs 60000 crore to be allowed for financing infrastructure projects in2012-13 The Union Budget announced harmonised master list of infrastructure sector approved by the Government. National Manufacturing Policy announced with the objective of raising the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs. Coal India Limited was advised to sign fuel supply agreements with power plants, having long-term PPAs with DISCOMs and getting commissioned on or before 31 March 2015 External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects. Transport: Roads and Civil Aviation The Union Budget 2012-13 proposed an increase of allocation of the Road Transport and Highways Ministry by 14 per cent to Rs 25360 crore. ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project. The budget permitted direct import of Aviation Turbine Fuel for Indian carriers. The budget also stated that the ECB is to be permitted for working capital requirement of airline industry for one year subject to a total ceiling of US $ 1 billion. Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government was also made.

Micro, Small and Medium Enterprises Rs 5000 crore India Opportunities Venture Fund proposed to be set up with SIDBI. The launch of two SME exchanges in Mumbai to enable greater access to finance by

Small and Medium Enterprises (SME) was announced in the budget The Union budget approved policy requiring Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs Of the total 20%, 4 per cent is to be earmarked for procurement from MSEs owned by SC/ST entrepreneurs. Textiles Financial package of Rs 3884 crore for waiver of loans of handloom weavers and their cooperative societies was announced in the Union Budget 2012-13. Budgetary allocation for textiles includes: The budget also proposed setting up of two more mega handloom clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighbouring districts in Jharkhand Three Weavers Service Centres one each in Mizoram, Nagaland and Jharkhand was proposed to be set up to provide technical support to poor handloom weavers Rs 500 crore pilot scheme was announced for promotion and application of Geotextiles in the North Eastern Region. Powerloom mega cluster to be set up in Ichalkaranji in Maharashtra with a budget allocation of Rs 70 crore.

Indias Infrastructure A road ahead

China and India often are compared in the same breath by western executives weighing sites for expansion or outsourcing, but the reality of the situation is that in terms of infrastructure, China is decades ahead of India an important consideration for industries reliant on strong power, water, transport or information infrastructure.

Like China, India is a large country and some sections are far more developed than others, so major destinations like Bangalore or Delhi need to be considered separately from some remote province in central India. Also as in China, the massive population moving from very poor to somewhat poor is resulting in titanic shifts in demand for commodities vital to businesses, swamping the electrical grid and threatening the vital supply of freshwater. Whether your business makes high-tech gadgets or bathroom

slippers, infrastructure matters and a long-term consideration of what to expect is the first step in any outsourcing plan. While the list of problems is extensive, however, an investor should keep in mind that India has just as many advantages. There is no such thing as a free lunch, and businesses should be aware of both the advantages and pitfalls of investing in India. Power

Indias overstressed power grid is one of the most obvious signs of lagging infrastructure development. The modern electronics industry is holding its breath after a the one and a half day power outage in South Korea, which crippled Samsungs NAND flash memory production and may reduce global production of NAND memory by a fifth. In India, in contrast, power failures can and should be expected daily, even in the most developed areas of Delhi, Mumbai and Bangalore. Any respectable business or factory in India maintains a diesel generator, and the shopping malls and call centers are built atop huge storage tanks of fuel. The outages arent just spikes, but rather hour-long blackouts with multi-hour brownouts thrown in. Beyond keeping industrial machines and computers running, air conditioning is essential to office work in this unmercifully hot country, and even service providers must bear the burden of backup power. In a good hotel, visitors may not even notice the shift from grid to generator, but this necessity adds to the cost of building and operating a facility in India. Effectively, the government is passing the buck on infrastructure to the investor, and generator costs add up fast. Some Industrial Parks or Research Parks will provide continuous power through shared generators for small companies this is a huge perk, as a generator will require maintenance and logistics that the park can provide. Of course the park is charging a premium for that, and for large factories this may not be as good a deal. How to operate with a generator and its logistics is a key factor in designing a factory or office in India, and finding on-site consultants is recommended. Is the situation going to improve? Indias government has committed itself to improving the nations power grid, but in the worlds largest democracy, government targets tend towards Electricity for all by 2012 (a part of many politicians election campaigns) rather than Reliable power by 2012 or A well-managed grid by 2012. One thing sure to expand is the nations use of electricity per capita, as the middle-class becomes wealthy enough to

afford air conditioners and run them around the clock. It is estimated that between increased consumer demand and new industrial projects, over a hundred gigawatts of new power capacity are needed by 2012, of which almost 29 gigawatts are now under construction. Ultimately, the issue is not just total production but improved management, as currently both high-tech factories and residential areas suffer alike. Eventually, Indias government must realize that it will never support truly high-tech production like South Koreas until power outages are unheard of. For now, invest in a generator. Transportation

Indias airports are unfortunately the first thing a traveler sees, and they are undergoing much needed improvements. To take Delhis Indira Gandhi airport as an example, the airport currently is built to accommodate 12.5 million passengers a year but must deal with 16.2 million (for comparison, Thailands Suvarnabhumi airport is built to handle 45 million). The aesthetics of the structure aside (which are poor, with claustrophobically low ceilings in places), the check-in area actually leaks when it rains. A third terminal is being built, however, with 35 million passengers a year capacity and the modern features that international travelers have come to expect. This pattern is true across India, where currently the air facilities are sorely in need to replacement (upgrades to most would not be worthwhile), but also where those replacements are already being built and at a frenzied pace. Currently, Indias air infrastructure is overtaxed and an embarrassment to the nation, but by 2010 the new airports will go online and by the mid-2010s, India will have a strong air infrastructure. One of the advantages of having as large and decentralized a country as India, along with the drive to create a completely new air infrastructure, is that good planning and distribution can prevent many of the bottleneck issues some airports face, such as Chicagos OHare. Indias intensely democratic and populist leanings are an advantage in this regard, as the government is under pressure to improve its Second Tier cities, both to avoid large slums forming in its main centers and to spread the coming wealth around. To that end, Indias new air cargo hub is being constructed at the poorly known city of Nagpur in central India. Combined with budget air flights flying from airports near, but not in, major cities, this bodes well for avoiding congestion as Indias aviation industry booms, and it is booming. Relaxed regulations have led to the rise of budget airlines and cargo carriers who have proven far more agile and responsive than the

state-involved mammoth, Air India. In the coming years, the cost of airfreight and travel within and from India will drop and simultaneously open up new economic opportunities in Indias second tier cities now being added to the air system.

Driving in India is, without a doubt, an extreme sport. A driver on a recent trip said that To drive in India you need three things: a good horn, good brakes and good luck! Indias roads were mostly small one or two lane affairs until massive building projects in the past few years, and the new roads are instantly distinguishable from the old infrastructure. Old roads tend to lack physical lane dividers, and Indians treat painted dividers as guidelines rather than hard and fast rules, so traffic jams develop very quickly as drivers slip into the opposing traffics lane and things grind to a halt. New roads are not only wider and better paved, but with physical dividers the traffic flow is far more orderly. A new problem has cropped up, however, which is that most cars on the road (as well as lumbering trucks and motor-rickshaws) are designed for slow crawls through traffic and are vastly underpowered for a decent highway. What this means for businesses is that any truck shipments will move at, optimistically, 30 km/hr (about 15 mph) even on good roads, as trucks are not very capable at weaving and passing around motor-rickshaws, not to mention the cattle strolling freely in the streets. At Indias ports the dual problems are a lack of infrastructure and a crippling bureaucracy. This differs greatly from port to port, but in general the necessary upgrades are being made, but very slowly. The inefficiency issue is harder to fix, and is a reflection of Indias bloated public sector. The often-quoted statistic is that Shanghais port can turnaround a container ship in 8 hours, but the same ship in Bombay takes 3 days. Without a doubt, China or Thailands ports are well ahead of Indias, though again this is a matter of efficiency (and delays) and not outright capability (India can still deal with container ships, just not quickly) so this is a factor to necessarily add into time calculations, and additional costs of shipping should be considered when weighing manufacturing costs between India and other Asian countries. Water

Multiple factors are converging to ensure that India will suffer severe shortages of freshwater in the years to come. As the poor majority of Indias population rises to the level of running water (drinking water for everyone by 2015, as another political campaign goal), freshwater usage will spike. Indias industries are finally moving into high gear, however steel production and chemical manufacturing both require huge amounts of water. Indias population continues to grow at an alarming rate, farm yields are declining due to sloppy crop rotation and pesticide use and more farms are needing irrigation. Global warming has led to a well-documented reduction in the size of Indias glaciers, whose snowmelt feeds the countrys rivers, and the water table in the north has dropped from 60 feet ten years ago to over 300 feet today, nearly depleted. The poor will, of course, be hit hardest and an investing business will no doubt be able to afford water and food, as will their workers, however for manufacturers and other industries that require a reliable source of freshwater, shortages will become a problem. While now water availability is not an issue for factories, in ten years the situation will probably be akin to the power grid where there are rolling blackouts as reservoirs run dry and must be refilled. Likewise, factories will need to have reservoirs of freshwater onsite to provide continuous water just as they need diesel generators now. Another added and, for now, hidden cost to expect in an Indian facility. Labor Migration

Indias rural population continues to flow towards the urban centers for work and skilled labor (including knowledge workers) move from the second-tier cities to the main hubs of Delhi, Calcutta, Bangalore and Mumbai. The national government is trying to redirect migrants to the second tier cities to prevent slums from forming, and knowledge industries are increasingly looking at second tier cities as salaries in the major cities, especially Bangalore, skyrocket. A recent college graduate can expect to make $300 a month in Delhi, over $500 in Bangalore and $150-$250 in a second tier city. Service outsourcers have noticed this, and as the data infrastructure improves in second tier cities, the 50% savings on labor is making many companies reconsider Bangalore as a destination. The nature of many service providers operations in India make the college graduates almost a commodity and demand can be easily met in the second tier cities for all but

R&D activities. Unskilled, and even skilled, labor is abundant and the shortages seen in Eastern China and Southern Vietnam are not an issue. Workers are often satisfied with a lower standard of dorm or hostel (if any) than those in East Asia, who have come to expect sprawling dorm towns with limited, but still present amenities. In India, such housing and other issues tend to take care of themselves, however the result of this is that transport systems are not as organized as in China or Vietnam, so like much else in India decreased efficiency is traded for low cost. Security

Indias cities are predominantly safe, if only because so many people are always around, and certainly mugging or murder is not a major concern. Terrorisms scares and actual attacks do occur with some frequency, however as in the US and everywhere else, the risk of actually being involved is absurdly low. More of a concern are the myriad insurgencies across India, some of which are political in nature and others verging on outright banditry. There are at least twenty distinct insurgencies in India, mostly clustered inland in the North or Northeast and in the far Northeast, where India has tenuous control over a large region connected to the country only by a 26 kilometer strip of land wrapping around Bangladesh. Some of the groups seek revolution (including Maoist rebels) and others are ethnic-based groups seeking independence. India is a swirling mix of religions and ethnicities, and due to its young age as a nation (only 60 years) many conflicts involved in its initial forming are still unresolved (including alleged kingdoms that were forced to join the nation at gunpoint). Most outsourcing destinations are on the west coast, however the local political situation should be checked before investing, especially if a less famous Second Tier city is being considered. Conclusion The choice of which city in India to base in is a unique challenge for each company and depends on what incentives are offered by the city in question and how its infrastructure matches a companys needs. Bangalore is very much overheating with soaring wages and undeveloped infrastructure, leading many service providers to move their call centers to Delhi or Mumbai. Calcuttas communist state government is providing generous

incentives to lure business, and the states lack of previous investment make it attractive for investors of all sorts now. The second tier cities are becoming a major player in industries reliant on unskilled labor, despite the fact that goods must usually be hauled by truck some distance to the nearest port. As the utilities in these second tier cities improve, skilled labor industries and service providers will move in to take advantage of wages half those of Bangalore.

Indias infrastructure presents a bleak image, but most of the problems are surmountable with adequate planning and investment. For some industries, the problems are just too numerous and the lack of infrastructure drives investors to China and Vietnam, despite rising labor costs, worker shortages and declining government incentives. For others, Indias rock bottom wages and English-speaking workforce trump the infrastructure headaches. It is absolutely essential to plan for and budget the additional costs involv ed (such as a generator) from the beginning, or else India becomes a quagmire requiring ever more investment. If proper precautions are taken, however, India holds as much potential as China did ten years ago and the current lack of infrastructure should be seen as just another hurdle to overcome in outsourcing.